The Umbrella That Did Not Drop

The first step is to compare the auto policy's actual limits with the umbrella's required underlying limits. The auto policy has 100/300/50, but the umbrella requires 250/500/100. The daughter's crash produced $700,000 in damages, and the auto carrier paid $300,000, its per-accident limit.

A personal umbrella usually sits above the required underlying limits, not above whatever lower limits the insured happens to carry. Many umbrella forms contain a maintenance-of-underlying-insurance condition and define a self-insured retention or retained limit. If the insured fails to maintain the required limits, the umbrella may respond only above the required underlying amount, leaving the insured responsible for the gap. On these facts, the umbrella might pay the portion above $500,000, or $200,000, while Dana bears the $200,000 difference between the $300,000 auto payment and the $500,000 required underlying limit. Some forms instead drop down and cover the gap subject to a self-insured retention, so the actual result depends on the umbrella's retained-limit language.

The agent should not assume the umbrella fills the gap. The claim should be tendered, but Dana should be advised of the likely $200,000 personal exposure and the need to restore 250/500/100 auto limits immediately.

The consulting claim is a business exposure, not a personal exposure. The homeowner's policy denied it because bodily injury or property damage arising out of business pursuits is excluded. The umbrella does not automatically cure that denial. Personal umbrellas typically exclude business pursuits, professional services, and liability arising out of the insured's business. A drop-down feature applies to losses that are covered by the umbrella but not covered by underlying insurance; it does not create coverage for an exposure the umbrella excludes.

The fact that the claim is for $150,000, which is below the homeowner's $300,000 limit, does not matter because the homeowner's policy excluded the loss. The umbrella's self-insured retention is also irrelevant if the business exclusion applies. Dana needs a professional liability or errors-and-omissions policy for the consulting work, plus a business owners policy for general liability. If she wants personal umbrella protection to follow the business, she would need a commercial umbrella or an endorsement specifically extending coverage to the described consulting activity, and even then professional liability may remain excluded.

The agent should document the denial and explain that the umbrella is not a backstop for uninsured business risks.

The boat claim is $200,000, and the boat policy has $300,000 liability. On its face, the loss is entirely within the underlying boat limit. A personal umbrella is excess insurance: it generally pays only after the underlying policy has paid its limit. Because the boat policy has $300,000 available and the claim is $200,000, the umbrella should have no payment obligation. The boat carrier should defend and pay the claim up to its limit.

The more important issue is whether the umbrella even covers watercraft. Personal umbrellas vary: some cover watercraft liability excess of a scheduled underlying watercraft policy, some exclude owned watercraft above a certain horsepower or length, and some require the watercraft to be listed. Dana should confirm that the boat is scheduled and that the underlying boat limits meet the umbrella's requirements. If the boat were not scheduled or the underlying limits were inadequate, the umbrella might not respond at all, or a retained limit could apply.

The agent should not let Dana assume that the umbrella will pay simply because a claim exists. The correct advice is to tender the claim to the boat carrier first, confirm the umbrella's watercraft schedule, and preserve the umbrella's excess position.